MR. FRATTO: Good afternoon. Actually, I have nothing to lead with, so we
can go straight to questions.

Deb.

Q The targeted tax cut part of this idea -- is this one idea that he's
considering?

MR. FRATTO: Well, look, I know that there's lots of interest in the
economy, and what our intentions are, and the President addressed this
yesterday, in terms of what we can do to try to ensure that we have both
short-term and longer-term economic growth. You know, tax cuts are
important. We favor tax cuts as a measure to promote economic growth. We
know from experience that it's been helpful in the past. We've done tax
cuts before, and it's led to growth. The President is looking at the data
that's out there. We'll be looking over the next few weeks at the data
that came in. We saw the jobs report today. That will factor in the
President's thinking.

Q Is it pretty sure that he's going to -- are we pretty sure --

MR. FRATTO: I think it's premature to say.

Helen.

Q Does the President think it's a good prelude for the Israelis to kill
nine Palestinians, five in one family -- as a prelude to his trip on the
West Bank?

MR. FRATTO: I think what the President is concerned about is bringing
peace to that region and allowing the forces of freedom and democracy to
have the opportunity to thrive. And that's one of the features of his
trip. I think we're concerned, whenever we see extremists, that are --

Q Have you explained to the Israelis about those killings?

MR. FRATTO: We talk regularly to the Israelis, and of course the President
is headed there next week. But I think any time we see extremists who are
looking to defeat the forces of freedom and democracy, we oppose that. And
we understand Israel's right to protect itself when --

Q It's not extremist to kill nine people on the West Bank under
occupation?

MR. FRATTO: I think what our focus on is having the Palestinians and the
Israelis sitting down at the table and making the hard choices so that they
can -- so they can move to two states living side by side in peace.

Ed.

Q Tony, on the President's Mideast trip, yesterday the State Department
said that at a pretty senior level, the U.S. government has raised with the
Saudi government this case of a Saudi blogger who's been detained. Can you
elaborate a little bit on senior level, in the sense of, do you think this
is something the President would address when he visits Saudi Arabia next
week?

MR. FRATTO: I'm not sure if it's something the President will address it
when he's there next week. I understand Sean McCormack over at the State
Department talked about that. I don't believe it was Secretary Rice; I
think somewhere below Secretary Rice had conversations with the Saudis on
this.

Obviously, you know, we promote freedom of expression as much as possible,
whether it's on blogs and newspapers. We think it's essential to thriving
societies to continue on that path to democracy, where you can use the news
media to speak to your fellow citizens; it's very important. So I don't
know if it's something that the President will raise next week, or if there
are further opportunities for the State Department to talk to the Saudis
about it. I would just refer you to them and see how their conversations
are going.

Q And can you talk a little bit about the Iowa caucuses last night? You
said off camera earlier that the President did stay up and watch it. Can
you talk about why and what his interest level is, but also about a lot of
people reading the results as being a change of election that we're heading
towards. Is that a repudiation of the President's policies --

MR. FRATTO: Well, I think -- no, not at all. I think every election is a
change, especially at the end of two terms. The President has talked about
the fact that, you know, after a certain period of time, you want to have
new blood and new people in, but we're looking forward to the next year and
getting the work done that we need to get done.

The President is viewing the elections just like -- probably like most
Americans are, maybe a little bit more so because he's someone who's run in
these elections and then grown up in a family that has been involved in
presidential campaigns in the past. So I think any of us who've been
involved in it look at it with a little bit more interest. He stayed up
last night and watched the results with great interest and had -- he
understands the feelings that the winners went through; he understands the
feelings that those who didn't win went through also. He's been through
both scenarios, and he understands that it's a long campaign. That was
just the first night and he'll be paying some attention to it.

Q As a follow on that, why did he say yesterday that he found his own
experience of losing in New Hampshire a blessing because -- well, why does
he say that losing in these early contests can be a blessing?

MR. FRATTO: Well, I think that a presidential campaign is a test of
character and, for him, he felt that losing and being able to come back and
show that you can take a hit and have the perseverance and the work to come
back from it is something that's good for you personally, and it also shows
the American people that you have that resiliency. I think that's what it
means for the President.

Q Kind of a Comeback Kid syndrome?

MR. FRATTO: He kind of -- he had that going.

Q Tony, off camera you talked about the economy. I'm wondering, on
camera, if you can talk a little bit about where things stand from the
White House perspective on the economy based on the latest data, and if
today's meeting is a sign of perhaps more concern from the President, that
he's never met with this group before?

MR. FRATTO: Well, he's met with -- you're referring to the President's
Working Group on Financial Markets that the President will be meeting with
in about 25 minutes. Of course he's met with all of these members somewhat
regularly. Hank Paulson he meets on a very regular basis with and speaks
to Hank directly on broad economic issues and also on -- Hank reporting on
the work of the President's Working Group on Financial Markets, the work
they're doing and on the condition of our financial markets.

The economy, you know, we're seeing a mixed picture. We see job growth
that maybe wasn't as fast as expectations today, but we have to remember
we're in 52 straight months of consecutive job growth. That's the longest
period of job growth in recorded history for this country, so those are
positives. We've seen mixed data in the area of inflation. We see core
inflation that's been largely in check, but certainly energy prices, health
care and some other commodities are increasing and prices haven't had a
big rollover into core inflation, but it's something that we're keeping an
eye on. We know the Fed is keeping an eye on inflation, and they're
committed to price stability and beating back inflation.

We're dealing with the housing market. We're dealing with higher energy
prices. And we have policies out there to address those issues. Something
that the President will be focused on, we talked a little bit about taxes
earlier. One thing that we'll be standing fast on is stopping tax
increases. We think if you look at the economic environment we're in
today, I think it's clear that if we allowed tax increases to occur over
this past year, that would have been a disaster for this economy. So we
see that as a positive and we'll be doing the same looking forward into
next year.

Toby.

Q I had a -- on the Middle East, is there any indication yet on whether
there will be a joint three-way meeting when the President is there?

MR. FRATTO: Yes, I think Steve Hadley talked about this yesterday. He
said it's not on the calendar.

Q He said, at that point --

MR. FRATTO: I don't have anything new on that. I think he also indicated
he wasn't expecting it to be added to the calendar at that time, but I
don't have anything new on that right now.

Yes, Roger.

Q Back to the economy. We can say with accuracy that the President is
considering tax cuts as among the options on the table.

MR. FRATTO: I think you could say the President is looking at the data out
there. Tax cuts would be a component of any -- it would be an option that
we would certainly consider. I don't think that should come as a surprise
to anyone.

Look, like I said earlier, we know from experience that you can use tax
policy in an appropriate way to generate growth, and that's something that
we certainly believe in. There's no firm decision from the President yet
as to whether he certainly will or will not move forward with anything new
for economic growth, but we'll see.

Q And his meeting with the financial working group is as a unit?

MR. FRATTO: Yes.

Q Even though this is the first time in this presidency that he's met
with them as a group, we shouldn't draw any significance or inference on --

MR. FRATTO: No, I wouldn't. Obviously, there are important market-related
issues out there that he would like to have a discussion about, and
received a lot of news coverage lately. You've seen some of these stories
move from the front page of the business section to the front page of the A
section in newspapers, and people are paying more attention to it. But
these issues have been out there for a long time, and he's been briefed and
received lots of information on these issues. But there was no one sort of
triggering event that led to this meeting. He just wanted to have a chance
to have a conversation with all of them together.

Bill, did you have a question?

Q I'll pass for now.

MR. FRATTO: Okay, Goyal.

Q Thank you, Tony. Two questions, please. As far as last night's
elections was concerned, major issue among Republicans was really
immigration. You think -- in the coming elections in November that's what
the indications are that the major issue will be again, immigration? How
does you think President will take this issue?

MR. FRATTO: We think very, very seriously about the issue of immigration.
I'm not going to try to handicap it as an election issue for either party,
or any of the candidates. But as you know, we tried to do a lot on
immigration last year. We're going to continue to look for opportunities
to rationalize our immigration system. But I'm not going to try to discuss
it in the context of the election campaigns.

Q (Inaudible) subject, if I may. As far as Benazir, yesterday Mr.
Hadley also spoke about al Qaeda hand, it may be there. Now Osama bin
Laden or al Qaeda, they are taking responsibility that we have eliminated
pro-America democratic leader. My question is that, if President Musharraf
is busy in combating all these terrorists, or domestic problems and all
that, how will you think really he will continue to fight against terrorism
or to help the U.S. to bring Osama bin Laden and his people to justice?

MR. FRATTO: I have not seen this report, if that's out there; we'll
certainly look for it. But as for President Musharraf, I don't think
there's any question that he has been a very strong hand in fighting and a
strong ally in fighting al Qaeda and Taliban elements in Pakistan, and that
is an important relationship for us to have leadership in Pakistan --
whoever that leadership is -- to be committed to fighting extremism. So
that's what we'll be looking for.

Q Tony, the North Koreans say that they've provided a declaration or
information about their nuclear programs back in November. You and others
seem to say that they haven't done that. Are you worried that this is
heading towards an impasse, this agreement that you reached back in
February?

MR. FRATTO: No. I think we're seeing progress on parts of this agreement.
I'm not aware of any sharing of any document with U.S. authorities. But
the North Koreans know what's expected of them and what the rest of the
parties are looking for, and that is a full and complete and accurate
declaration of their nuclear activity.

They know that. We've had lots of conversations about what that means.
Chris Hill is -- I think he's either on his way or in the region right now,
and he'll be having these discussions with our other parties in the
six-party talks. And so hopefully he'll have some more to say on that.

Q To clarify, was there some information or declaration, in their words,
that they provided in November? You're saying you've received nothing --

MR. FRATTO: I'm not aware of any document, and I haven't heard of any
document that's been provided. Certainly there have been many
conversations, and Chris Hill has had conversations with his counterpart in
North Korea in the six-party talks and with the other members. It's
possible that information was shared, but I'm not aware of any document
that was given to the United States.

But the chair of the six-party talks are the Chinese, and what we expect is
for the North Koreans to deliver to the Chinese a full, complete and
accurate declaration.

Savannah.

Q Back to the jobs for a minute. How important a factor is that, in
terms of the greater health of the economy? How do you regard it? I mean,
either concretely or even psychologically.

MR. FRATTO: Well, in both ways, I would think, but certainly concretely.
There are a lot of myths out there with respect to the economy, and
psychology in the economy is important. You see people who respond to
polls saying they don't think the economy is doing that well; at the same
time, they, personally, may be doing very well and spending money and
seeing their incomes rise. But it does have an impact on consumer
confidence and how people think about the economy has an impact. When you
see news like unemployment ticking up, it can have an impact.

But the fact that you continue to create jobs and, I think, job creation
has exceeded most expectations over the past four years or so, and that's
been good. It's been good for the economy broadly; it's been good for
government revenues, the fact that nominal wages have been increasing has
been good. And we want to try to make sure that that job growth continues
and that we continue to see economic growth.

We do continue to see economic growth, by the way. It may not be as rapid
growth as we would like to see, but we still do see the economy expanding
and we still do hope to see continued job growth going forward.

Let's go to Roger, and then I'll go back.

Q A couple of analysts this morning, after the report came out, called
it a "recession lite." What do you think of that phrase?

MR. FRATTO: I don't. John.

Q Thank you. There was some recent manufacturing numbers that came out.
With the dollar's slide, you know, exports are a big part of the economy.
And the manufacturing numbers, there was a contraction, as well as a bigger
decrease in purchases for future business. Are you concerned that this is
predicting future recession?

MR. FRATTO: No. In fact, I would -- I would have a little bit of caution
in looking at a report and trying to infer what's going to happen in the
future. I mean, looking at that report in particular -- you're referring
to the ISM manufacturing sector report -- I think you can go back to the
'90s and look at '95, '97, I think '98, maybe once in the past four or five
years where that report has come in below 50 percent, which would indicate
a contracting, and didn't lead to contraction; it didn't lead to a
recession.

So try not to read too much into any one data point. If you're trying to
look at something and trying to extrapolate what that means for the whole
economy, that's something that we're going through right now also. We're
looking at that report and looking with lots of other reports together to
try to get a good sense of where the economy is going over the next year,
and also, really, over the next two years. When we send a budget up to
Congress on February 4th, that's an FY 2009 budget. So we have to be
fairly forward-looking, in terms of where we think the economy is going
over the next year to 18 months.

Ann.

Q Just to follow on that, in the Chicago economic speech, will the
President signal what his thinking is on either stimulus or taxes?

MR. FRATTO: I wouldn't expect that. I think you'll get a good sense of --
he'll talk about how he views the economy today, what we're -- you'll get a
sense of what he thinks is happening with economic growth, where we've come
to get to this point. And I think it will be a good status check on how he
thinks about the economy, but I don't think he'll use it to tip any future
policy.

Q Will he acknowledge, perhaps, the need for a stimulus package?

MR. FRATTO: I wouldn't expect that. Like he said yesterday --

Q How can he give a status of the economy or if he --

MR. FRATTO: I gave a little status. I didn't tip anything did I?
(Laughter.)

Q You did acknowledge that he's looking at --

MR. FRATTO: I acknowledged that he is looking at options, but he's also
looking at the need. So it's a question of whether a policy response is
required. And other questions are what kinds of policy responses are
possible. And questions of when: When do you do it? When do you announce
it? What would make sense from a perspective of how you see the economic
landscape over the next period of time?

So, no, he said that he wouldn't be ready to talk about anything until we
get closer to the State of the Union, and so I wouldn't expect any
foreshadowing before then.

Q It's a whole three weeks away.

MR. FRATTO: I know --

Q Is it a speech or a statement?

MR. FRATTO: It's remarks after lunch.

Q A speech.

MR. FRATTO: We call them remarks. (Laughter.) A statement, it'll be a
statement.

Q -- three to five minutes or something as opposed to a speech?

MR. FRATTO: No, it'll be longer than that.

Q It will?

MR. FRATTO: Yes. Paula.

Q If you are looking at the economy over the next year or two and again
you would have to, I presume, at some point decide if you're going to do
tax cuts, you'd have to do it at a certain point due to the lag time.
What, outside of tax policy -- or even would tax policy work when you have
so many other variables like oil prices, monetary policy, other real
economic indicators as well that are out of your hands?

MR. FRATTO: Yes, I think you've done a good job of noting some of the
complexities for how you think about making economic policy. I think
you're right. (Laughter.)

Ed.

Q The CIA has now declassified a letter that Representative Jane Harman
sent the CIA in February of 2003 raising questions about -- and concerns
that they were going to destroy these interrogation videotapes. My
question is, if a Democratic member of Congress knew in 2003 about the
existence of the tapes and about their possible destruction, why would that
have not filtered its way to the President? If lawmakers were being
briefed, why wasn't the President briefed by the CIA?

MR. FRATTO: That's not -- that's just not something I can comment on. I'm
not going to be able to talk about any deliberations that occurred here.
As you saw, the Attorney General made his announcement that they're moving
to an investigation stage in this, and the counsel we have is to not make
comments that might in any way influence that.

Q But are you surprised that they wouldn't have looped him in -- I mean,
without judging why they did or didn't -- but were you surprised that it
wouldn't meander its way to --

MR. FRATTO: I think to answer that question would require me to comment in
a way that wouldn't be appropriate.

Q Since the Middle East is a tinderbox, is there any concern about the
President's security when he goes to the Middle East?

MR. FRATTO: I couldn't speak to what the Secret Service and diplomatic
security do in terms of the President's security.

Q I'm asking if -- I said, is there any concern?

MR. FRATTO: I think we have a lot of faith in the ability of the Secret
Service to protect the President.